A leading House Democrat attempted to jump start the tax reform debate in Washington on Monday by proposing to boost investment taxes while cutting levies on families making less than $200,000 annually.
Rep. Chris Van Hollen, D-Md., ranking member of the House Budget Committee,
outlined a plan that would curb tax breaks, such as lower rates for capital gains than for personal income, and impose a tax on financial transactions. It also would include a tax cut of $2,000 annually for two-earner couples who make less than $200,000, a tax credit for investing those savings in a retirement plan and other tax cuts and credits.
“We need to build a fairer tax code that rewards paychecks for work and not just money from making money,” Mr. Van Hollen said in a speech at the Center for American Progress, a left-leaning think tank.
The challenge his plan faces in a House with a stronger Republican majority was immediately apparent.
“Just as the sun rises in the East, Washington Democrats propose another massive tax increase,” Brendan Buck, communications director for House Ways and Means Committee Chairman Paul Ryan, R-Wis., said in a statement. “Here in the House our focus is going to be on cleaning up the tax code so that we can lower rates for all taxpayers and help create good-paying jobs, not scaring them off with punitive tax hikes.”
Republicans' “trickle-down” tax-reform principles — based on the idea that tax cuts for high earners benefit the economy and all income levels — are misguided, Mr. Van Hollen said.
“They're simply for spending money through the tax code on powerful elites and the already wealthy,” Mr. Van Hollen said. “That's why you see rising wealth inequality that is staggering.”
A financial services transaction tax is an idea that made little progress when Democrats controlled the Senate and had more House members. Now that the GOP has a Senate majority, it faces a steeper climb.
The tax is “a high-roller fee to curb excessive financial speculation,” Mr. Van Hollen said, adding that a fee of 10 basis points, which has been proposed in the European Union, would be “virtually imperceptible to average investors.”
The Securities Industry and Financial Markets Association praised Mr. Van Hollen for encouraging savings but criticized the transaction tax as “an old idea with a long history of negative consequences.”
“Mr. Van Hollen's proposed new sales tax on investors would be paid by every American that holds a retirement account, owns a mutual fund or is part of a pension plan,” SIFMA President and chief executive Kenneth E. Bentsen Jr. said in a statement. “Retirees would likely be hit the most. It will raise the cost of saving and undermine what the congressman seeks to accomplish.”
Another financial services group that has fought a transaction tax is the Investment Company Institute, which represents the mutual fund industry.
“Experience tells us that a transaction tax is simply a bad idea,” ICI spokesperson Ianthe Zabel said in a statement. “No matter how it is structured, such a tax could harm individual fund investors and create market distortions that would reduce the efficiency of markets for all participants — including middle-class investors — by shrinking market volumes, impairing liquidity and distorting price discovery.”
Over the next several weeks, Mr. Van Hollen will be crafting legislation around the ideas in his plan.
“I see this as the start of a conversation,” he said. “I do believe that this action plan will in time get the attention of the American people.”
